Landlord and tenant–Action by tenant of restaurant forming part of motel complex against landlords in respect of damage caused by alleged breach of landlords’ covenant in lease — Tenant covenanted to repair interior and exterior of the demised premises, but landlords covenanted to keep the main walls and roof in good structural repair and condition throughout the tenancy — A few years after the commencement of the tenant’s lease it became evident that the foundations of the restaurant were defective — There were no piles under part of the concrete raft on which the building was constructed, with the result that the raft tilted, causing damage to walls and roof — The action by the tenant concerned the liability of the landlords under their covenant — Landlords submitted that the judge was wrong in holding that, as the walls of the restaurant had become unstable owing to subsidence, the landlords were in breach of their covenant to keep the walls and roof in good structural repair and condition — The landlords argued that the imposition of such a liability amounted to requiring the premises to be improved, thus rendering them different from the premises demised — Authorities reviewed–Held that the landlords were liable — The only way to put
This was an
appeal from a decision of Judge Mervyn Davies QC, sitting as a judge of the
Chancery Division. The judge decided in favour of the tenant, Barry Thomas
Smedley, in an action against the landlords, Chumley & Hawke Ltd, for
breach of the landlords’ covenant to keep the main walls and roof of the demised
premises in good structural repair and condition. The premises demised
consisted of land and buildings used as a restaurant, known as the Vandyke
Restaurant, which formed part of a motel complex at Horning, Norfolk. The
landlords appealed. The third party was Stanley George Warrell, the architect
who designed the structure.
Geoffrey
Jaques (instructed by Hill & Perks, of Norwich) appeared on behalf of the
appellants; Michael Baker (instructed by Mills & Reeve, of Norwich)
represented the respondent; John Ross Martyn (instructed by Allan Rutherford,
of Norwich) represented the third party.
Giving
judgment, CUMMING-BRUCE LJ said: By a lease dated December 31 1971 the
appellant (defendant in the action), herein called the landlords, let to the
respondent (plaintiff below), herein called the tenant, land and buildings for
use as a restaurant (the Vandyke Restaurant) for 21 years from January 1 1972
at a rent of £1,300 a year, subject to upwards-only rent review. The property
demised forms part of a motel complex at Horning in Norfolk. The landlords
covenanted:
3(b) To keep the main walls and roof in good
structural repair and condition throughout the term and to promptly make good
all defects due to faulty materials or workmanship in the construction of the
premises.
This covenant
has to be read and contrasted with the tenant’s covenant 2(e), whereby the
tenant covenanted:
From time to
time and at all times during the term hereby granted well and substantially to
repair cleanse maintain and keep the interior and exterior of the premises and
the Lessors fixtures therein (if any) (unless the same shall be destroyed or
damaged by fire not arising from the actual act or default of the Lessee or any
servant agent invitee or licensee of the Lessee) and in particular as occasion
requires thoroughly to sweep all chimneys and flues in the premises and clean
all windows and all cisterns boilers and water pipes and keep all ball cocks
and interior pipes gas pipes and electric wires in the premises in good order
and condition.
The facts
found by the learned deputy judge are as follows. The Vandyke Restaurant was
built together with the other buildings comprising the motel in about 1971. The
landlords were responsible for its construction. It is built very near to the
banks of the River Bure. In April 1976 the tenant’s surveyor drew attention to
the condition of the premises when he was inspecting in connection with the
rent review clause. He observed that some of the floors sloped, and in places
one had the impression of walking uphill. Secondly, he found some of the doors
and windows out of true. Thirdly, he saw ruffling and crinkling of paper on
some of the walls caused by the differential movement of two walls at the place
of join. Later, he saw cracks in the floor. He advised that immediate action
was necessary to arrest the development of the defects as subsidence was taking
place and superficial repairs had been inadequate. The tenant’s insurers
withdrew their public liability policy, so that the tenant had to discontinue
using the premises as a restaurant.
The landlords
proceeded to carry out the necessary structural work necessary to put the
building into a good structural condition. The trouble was that when the
premises were built the foundations were defective. The building itself is of a
timber frame. It was constructed standing on a concrete raft. The raft was
supported at the river end upon piles sunk into the river bank. But there were
no other piles beneath the raft. By 1976 the end of the raft furthest from the
river was sinking into the ground so that the raft was tilting with
consequential damage to the structure of the walls and roof. The remedial work
involved jacking up the building and the concrete raft on which it stood,
driving in additional piles to support the raft, placing joists upon the piles
and then lowering the raft and the building down on to the joists. A new wooden
floor was put on top of the original concrete raft. When the work was done, the
restaurant was the same in the sense that the superstructure was the same as it
had been when it was first built, though the foundations were different.
In September
1976 the tenant brought an action against the landlords claiming breach by the
landlords of covenant 3(b), and damage caused thereby. He sought an order that
the landlords should carry out the works necessary to repair the defects in the
structure of walls and roof, and damages for consequential loss. By their
defence the landlords denied breach of covenant, and pleaded that any defects
in the premises were in direct consequence of the design of the restaurant and
so outside the scope of covenant 3(b). The landlords counterclaimed for breach
of an oral agreement that the tenant would insure against risk of damage for
subsidence. The tenant by reply joined issue on the allegations in the defence
and counterclaim. The learned deputy judge dismissed the counterclaim and no
issue thereon arises in this appeal.
By the date of
the hearing in the Chancery Division the work described earlier in this judgment
had been completed by the landlords on the terms that the landlords’ liability
under covenant 3(b) should be left for the decision of the court. Thus, the
issues for decision were (a) the landlords’ liability under the covenant and
(b) the tenant’s claims for damages for breach. The landlords did not seek to
recover the cost (some £6,000) of the structural work that they had carried out
over a period of some seven months. The tenant claimed the cost of works that
he had initially carried out, and damages measured by the loss sustained during
the period that he was unable to run his business in the restaurant, and
expenditure that he had incurred on reconnecting pipes after the work had been
done. The court was only asked to decide the question of liability under
covenant 3(b). Determination of questions of quantum of loss was postponed.
The lease was
entered into immediately after the landlord had constructed the premises. By
Clause 1 of the lease:
In
consideration of the expense incurred by the Lessor in erecting the building
now demised and of the rent and covenants on the part of the Lessee and the
conditions hereinafter reserved and contained the Lessor demises unto the
Lessee ALL THAT piece of land . . . together with the buildings now erected
thereon . . . and intended to be used by the Lessee as a restaurant . . . for
the term of Twenty-One Years.
The lessee
covenanted:
2(e) From
time to time and at all times during the term . . . well and substantially to
repair cleanse maintain and keep the interior and exterior of the premises . .
.
(f) At the determination of the said term to
surrender and yield up unto the Lessor the premises with appurtenances in such
state of repair as shall be consistent with the observance and performance by
the Lessee of the covenants aforesaid . . .
(k) To use and occupy the demised premises solely
and exclusively as and for a restaurant only . .
(l) To open and make available the demised
premises for use by the public as a restaurant by a date not later than March
31 1972 and in the event of the demised premises not being open and made
available as aforesaid then the Lessee shall pay to the Lessor the sum of Ten
Pounds per day by way of compensation for any consequential loss that may be
suffered by the Lessor . . . the sum contemplated and fairly estimated by the
Lessor to be the loss he might sustain in connection with his business of
letting adjacent chalets if the restaurant were not available for his tenants .
. .
(p) No alteration shall be made in the
construction . . . of the premises or any part thereof . . . nor shall any of
the principal walls or timbers be altered or cut nor any . . . substituted
building what so ever be erected or built on the premises . . .
In contrast to
the lessee’s covenant to repair, 2(e), is the lessor’s covenant 3(b) already
set out. This covenant imposed on the lessor two obligations. One was to keep
the walls and roof in the state described as good structural repair and
condition. The other to remedy all defects due to faulty materials and
workmanship in the construction of the premises.
This covenant
imposed on the lessor two obligations. One was to keep the walls and roof in
the state described as good structural repair and condition. The other to
remedy all defects due to faulty materials and workmanship in the construction
of the premises.
In approaching
the construction of the landlord’s covenant 3(b), I adopt the general approach
stated by Sachs LJ in Brew Brothers
covenant ‘to keep in repair the demised premises’, he said:
It seems to
me that the correct approach is to look at the particular building, to look at
the state which it is in at the date of the lease, to look at the precise terms
of the lease, and then come to a conclusion as to whether, on a fair
interpretation of those terms in relation to that state, the work can fairly be
termed repair. However large the covenant, it must not be looked at in vacuo.
On the meaning
of the words ‘To keep the main walls and roof in good structural repair and
condition throughout the term’, I, like the learned deputy judge, derive
assistance from the judgment of Fletcher-Moulton LJ in Lurcott v Wakely
[1911] 1 KB 905 at 915. There this court was deciding the extent of a tenant’s
covenant ‘to well and substantially repair . . . and keep in thorough repair
and good condition . . . the premises demised’ in a lease for a term of 28
years of a house at least 200 years old, in which a wall had become unsafe
through old age and lapse of time so that it had to be rebuilt.
Fletcher-Moulton LJ first sought to give full meaning to each word of the
covenant. Then he examined the effect of the covenants to keep the premises in
good condition and to keep them in thorough repair as compared with the
covenant to repair. The first two covenants imposed an obligation to keep the
house in a certain state and he drew no wide distinction between keeping in
thorough repair and keeping in good condition as both describe the condition of
the house. If the house was no longer in that condition, the covenantor was
obliged to put it into that condition, as this court had decided in Proudfoot
v Hart (1890) 25 QBD 42. The covenant to repair by contrast imposed a
duty to perform the operation of repair.
What then were
the obligations accepted by the landlord and tenant respectively in relation to
the Vandyke Restaurant? The landlords
built it and let it to the tenant for a term of 21 years for use as a
restaurant. The tenant covenanted to make the premises available to the public
as a restaurant not later than March 31 1972 and in the event of their not
being so available to pay the landlords a daily sum of ten pounds as liquidated
damages for the loss sustained in their business of letting the surrounding
chalets. The tenant covenanted well and substantially to repair and maintain
and keep the interior and exterior of the premises and to keep all interior
pipes, gas pipes and electric wires in good order and condition.
But these
obligations were modified and supplemented by the landlords’ obligations in
covenant 3(b) in two different respects. The landlords undertook responsibility
for the good structural condition of the walls and roof. They further accepted
responsibility for any defects due to faulty materials or workmanship in the
construction of the premises. This latter covenant likewise had the effect of
cutting down the extent of the tenant’s obligations to repair the interior and
exterior of the restaurant. It was suggested on behalf of the landlords that
this second covenant in clause 3(b) reduced the extent of the landlords’
obligation to keep the structure of the walls and roof in good condition; it
was submitted that if the walls and roof became unsafe by reason of defects in
design of their footings or foundation the landlords were relieved of their
obligation, as it extended only to defects due to faulty materials or workmanship.
I do not agree. The two covenants expressed in clause 3(b) are independent of
each other. The responsibility for keeping the walls and roof in good
structural condition is unqualified, and placed firmly upon the landlords.
On the facts,
the walls and roof appeared to be in good structural repair and condition when
the landlords built the premises and when immediately after erection the tenant
entered into possession. But these landlords had built the walls upon a
foundation which was liable to tilt. After four years the foundation had so
tilted that the walls and roof were unsafe. The only way to put the walls and
roof into a safe structural condition was to carry out such major works to the
foundations as were necessary to give the walls a stable base.
The learned
deputy judge applied the test propounded in this court in Lurcott v Wakely
[1911] 1 KB 905, cited the judgment of Vaughan Williams LJ at p 919, and
concluded:
The evidence
shows that on September 14 1976 the walls of the Vandyke Restaurant were
unstable due to subsidence. That means that the walls were not ‘in good
substantial repair and condition’ as I understand these words. Accordingly, the
defendant company were in breach of covenant 3(b).
In my
judgment, there was ample evidence to support that finding and conclusion.
The answer of
the landlords is that the learned deputy judge was wrong because the effect of
the conclusion was to impose on the landlords an obligation to carry out an
improvement and give to the tenant different and better premises than the
premises constituting the parcels of the lease. The argument is put in two
ways. There is a long line of authority to the effect that where a tenant is
liable to keep in repair, he is not liable to do work that has the effect of
giving the landlord a different and better house than the house that was let.
Counsel for the landlords and the third party relied upon Lister v Lane
[1893] 2 QB 212, Pembery v Lamdin [1940] 2 All ER 434, Sotheby
v Grundy [1947] 2 All ER 761 and Brew Bros Ltd v Snax (Ross)
Ltd [1970] 1 QB 612.
I make two
observations upon those cases. It is important to distinguish the extent of the
obligations where the lessor has let to the lessee an old house which has
gradually deteriorated, through the inevitable effect of the passage of time,
from the extent of the obligations imposed in connection with the lease of
premises recently constructed. Many of the old cases are concerned with the
former situation and do not assist in the analysis of the latter situation.
Secondly, in order to discover whether there is an obligation to do work made
necessary in order to correct the effect of defects in design, it is necessary
to examine carefully the whole lease and to decide the intention to be
collected therefrom, and in this lease the intention was to place upon the
landlords an unqualified obligation to keep the walls and roof in good
structural condition.
Then it is
contended that the work required to make the walls and roof safe was such that
it involved an improvement to the premises and rendered the premises different
premises from the parcels demised. Those parcels were, it is said, premises
with defective foundations, so designed that the base on which the walls were
built was bound to tilt over in four or five years. The work necessarily done
to make the walls and roof stable and safe involved giving the premises a new
and different character, namely, a foundation which enabled the house to stand
up instead of tumbling down. The lessor relies upon Brew Bros Ltd v Snax
(Ross) Ltd (supra) and in particular the passage in the judgment of
Phillimore LJ at p 646 where he accepted that the vital question in each case
is whether the total work to be done can properly be regarded as repair, since
it involves no more than renewal or replacement of defective parts, or whether
it is in effect renewal or replacement of substantially the whole, a question
of degree in each case.
It was
contended on behalf of the landlords that the test whether the effect of the
works was to render the premises something different from the premises conveyed
is to be applied by comparing the physical state of the premises as they were
at the date of the lease with their physical state after the work had been
done.
I prefer to
compare the premises contemplated by the parties at the date of the lease with
the premises as changed by the works actually done. Here the landlords built a
complex of chalets with a restaurant for the use of the public including the
persons occupying the chalets. Having built the restaurant they let it to the
tenant on terms that the tenant would run it as a restaurant for the use of
their licensees. The landlords accepted the obligation to keep the structure of
the walls of the restaurant in good structural condition. When the work was done,
they returned the restaurant to the tenant in the state it was in at the date
of the lease. The only difference was that the structure of walls and roof were
stable and safe upon foundations made structurally stable.
I would
distinguish the facts in the instant case from the facts in Brew Bros Ltd
v Snax (Ross) Ltd (supra). I compare and contrast the extent of the
obligations imposed by the covenant to keep in repair in the context of the
lease and of the circumstances in that case with the extent of the obligation,
with its emphasis upon structure, in covenant 3(b). That emphasis upon
structure is significant, because the structural condition of walls and roof is
likely to depend on their foundations. So here I would hold that after the
works were done the difference to the premises was that the walls
necessary condition at the date of the lease.
I would
dismiss this appeal.
TEMPLEMAN LJ
said: I agree with the reasoning and the result. I also dismiss the appeal.
CUMMING-BRUCE
LJ said that Dame Elizabeth Lane (who was not present for judgment) had asked
him to state that she agreed with the judgment he had delivered.
The appeal
was dismissed with costs. The costs of the third party and liability for costs
as between the appellant and the third party were reserved.